Tuesday, November 17, 2009

Unethical Leadership

On 7th January 2009, Satyam’s founder and Chairman B. Ramalinga Raju admitted that he had systematically falsified accounts as the company expanded from a handful of employees into a back-office giant with a large work force and operations in 66 countries.

Satyam Computer Services was a leading software consultancy, system integration and outsourcing firm in India with clients across 65 countries. It was later taken over by Tech Mahindra Ltd. in April 2009. As Cadbury says in his article, “The character of a company is a matter of importance to those in it, to those who do business with it, and to those who are considering joining it”. A part of this was clearly evident when late last year the World Bank barred Satyam from doing business with it for eight years over "improper benefits" paid to staff. Later, as news of the scam broke out, Satyam lost many other clients to its competitors.

In the four-and-a-half page letter that Mr. Raju wrote to make his confession, he described a small discrepancy that grew beyond his control. He wrote “What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It had attained unmanageable proportions as the size of company operations grew”. His reasoning was that he was trying to save Satyam and similar to what Gellerman describes - a belief that the activity was within reasonable ethical and legal limits….. that it was in the best interest of the corporation.

Satyam’s debacle once again proved what WorldCom and Enron have proven in the past--- leaders can lead their organizations towards glory or disaster. Many theorists like Sims and Brinkmann; and Barnard believe this happens as the leader’s personal values shape the organizational ethics. Some leaders fail to operate from what McCoy calls “a thoughtful set of personal values that provide the foundation for a corporate culture”.

This role of the leader’s values in creating organizational culture is very important in the business world today which is very complex and is constantly throwing challenges at organizations. Peter Senge talks about how organizations need to develop the ability to learn continuously to survive. This continuous learning, according to him, requires transformation of the organizational culture and it’s the role of the leader to facilitate this transformation. Such a leader would help his employees recognize their unquestioned assumptions about the market; customers; the way things work etc., and help them entertain the possibility that they could be wrong. Such a leader would create a climate where failures and mistakes would be openly discussed ….because that is how human beings and organizations learn, by opening up and contemplating on their mistakes and improving them with the help of others.

Therefore, I think, that a leader, who is not open to disclosing and discussing with his employees, the problems the organization is facing, will lead an organization to disaster because he would be preventing his employees and the organization from becoming ‘learners’ and a ‘learning organization’ respectively. As he would be lacking values such as transparency and reflection, he would fail to shape a culture that fosters individual and organizational learning. I would call such a leader unethical even though he may not end up committing a fraud. What are your thoughts?


  1. Shilpa, Interesting post. I think we've seen time and time again how crucial values are in defining "good" leadership (We love Selznick). I agree that leaders should be transparent, but my question is to what degree? Are there certain kinds of information that should always be accesible to everyone else? And if there is such a thing, how in the world would we keep up with it all and who determines what it would be?

    I think succesful leaders know themselves. They know when they are in over their heads. In your post you talk about a leader who knows that the company is doing bad, but instead of being transparent and open about the issue; he decides to take the weight of the company on his shoulders. We aren't superhumans...and we do have limits. Maybe there's power not only in being open and transparent, but also in the ability to delegate. Leaders might not only be empowering and mobilizing their followers, but also themselves.

  2. In response to your questions at the end, I wouldn't necessarily label that leader as unethical. I would say more inefficient is a way to describe a leader who lacks values such as transparency and relfection


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